Philly Needs to Reinvent Itself for the New Economy

Bold business tax reform could reverse Philadelphia’s economic decline and spark growth. / Photograph by Jayson Gomes

Inquirer columnist Inga Saffron recently wrote an important article about the potential impact of federal government funding cuts — specifically, reductions in research money for Penn and the NIH — on Philly’s eds and meds economy. The news wasn’t good. As Saffron noted, universities, hospitals, and their spin-offs account for 30 percent of jobs in Philadelphia and 15 percent in the metro area. The cuts put our most important economic sector at risk.

Meanwhile, we’ve seen plenty of chaotic activity around tariffs in recent weeks. It’s too soon to say whether those tariffs will ultimately lead to a renewal of American manufacturing, but there seems little doubt that the U.S. economy is about to go through a major shift.

Unfortunately, Philadelphia seems to be particularly poorly positioned for the economy that’s emerging.

Not only will those federal funding cuts severely hamper our most important economic sector, eds and meds, but the unfriendly business climate Philadelphia has had for more than half a century — specifically, our high business and wage taxes — make us an unattractive choice for manufacturers who might want to set up shop in the U.S.

In other words, we’re looking at a real crisis — one that comes on top of a crisis we’re already dealing with: a growing number of empty offices in Center City.

I’m an optimist by nature, and I still believe Philadelphia can have a bright future. But I also believe, as the saying goes, you shouldn’t let a crisis (or, in this case, several of them) go to waste. We need to fundamentally rethink and reform how we do things in Philadelphia.

For too long, we’ve put what I like call “band-aids” on our problems: a program here to help ease the pain of one problem, a benefit there to help soften the blow of another. I understand the impulse: We don’t want people to struggle.

But as any doctor will tell you, band-aids only get you so far. At some point you need to focus on a cure for what’s wrong with you. My opinion — and the opinion of many others — is that the disease Philadelphia has suffered from for a very long time is weak job growth caused by an unfriendly business climate.

Our business taxes are among the highest in the nation, which means large companies choose not to locate here and small ones leave the minute they start to grow — even though we have so many good things going for us. We lose jobs not only to peer cities like New York, Boston, and Washington D.C. (where business and wage taxes are lower), but even to our own suburbs (where business and wage taxes are almost nonexistent). Just look at what’s happening with Jefferson Health, which recently announced it’s exploring moving its headquarters out of Philadelphia because our wage tax is too high.

All of this directly impacts the lives of hard-working Philadelphians. A lack of good-paying jobs is why our median income is below the national average. Think about that for a second: Because of high taxes, the average Philadelphian makes less than the average American. That’s ridiculous.

We need to start focusing on a cure — right now. I was honored to serve on the Tax Reform Commission that City Council and Mayor Cherelle Parker created last year. And I was heartened that the mayor heard what we had to say about the costs of those high business and wage taxes. In the budget she unveiled last month, she included modest reductions in both business and wage taxes for next year — and baked in annual reductions over the next 13 years. By 2038, the gross sales portion of the business tax would be eliminated.

I applaud the direction the mayor is going, but I think we can’t afford to be timid in the face of the changing economy we’re facing. That’s why I’d respectfully ask the mayor and Council to speed up the pace of those reductions — and focus on eliminating the net income portion of the business tax over the next 10 years while lowering the wage below three percent.

As the Commission found, doing so would spark the creation of tens of thousands of new jobs in Philadelphia. Everyone would benefit.

I’ve written previously in this column that I’m a big admirer of Mayor Parker, and I think she’s done a strong job in her first year in office. I think she now has the opportunity to do something truly historic for Philadelphia — to be the mayor who didn’t just hand out band-aids, but who actually, at long last, delivered a real cure for what ails our city.